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ROCK PRODUCTS’ ANNUAL SURVEY ON THE OPINIONS, CONCERNS AND BUYING INTENTIONS OF PRODUCERS REVEALS WHAT IS ON THE INDUSTRY’S COLLECTIVE MIND.

By Mark S. Kuhar

With the national economy improving and indications that the infrastructure gridlock in Congress may be beginning to thaw, aggregates producers are looking ahead to the 2015 28-SOI-COVER-400production season.

Aggregates production rose in 2014, and 2015 is looking like another year of increases. In 2014, total construction aggregates production rose to an estimated 2.171 billion metric tons, representing a total value of $19.8 billion, according to the U.S. Geological Survey’s Mineral Commodity Summaries 2015 report. The estimated production volume represents more than a 7 percent increase over 2013 total production, which was a reported 2.027 billion metric tons.

This month, we share the results of our second, exclusive Rock Products survey, Benchmark 2015. This survey not only offers the opportunity to gauge current producer opinion, but we can also compare to last year.

So who took the survey this year? A typical respondent was, on average, a company officer, executive, owner or partner (44.6 percent) or a production manager, foreman of technical superintendent (30.8 percent) representing an operation cranking out more than 2.5 million tpy (29 percent). Other survey respondents came largely from, in descending order, operations of less than 500,000 tpy (27 percent) and operations of 500,000-1 million tpy (23 percent).

Just under half of the survey participants were producers of both crushed stone, and sand and gravel (45.7 percent), while one-fourth (25.5 percent) produced crushed stone exclusively. National geographic location was dominated by the Midwest and Northeast, with additional strong response coming from the Southwest.

Big Issues

When it comes to addressing the key issues facing aggregates producers, the big “number-one” identified by survey participants, as it was last year, is the construction economy, followed by transportation funding and the national economy (tied with environmental regulations.)

One respondent told us the industry’s number-one issue is, “[Our] national government’s failure to work together for the good of the country. Too many self interests, special interest groups and failure to represent the people.”

Another said, “The highway transportation bill and federal funding. When that slows it has a trickle-down affect on commercial and residential business as we stop spending money in general.”

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That sentiment was echoed by another survey respondent who said, “If the Federal Highway program is funded, and if we increase state fuel tax for use on highway construction,” the industry will benefit. The respondent also added, “Federal and state governments must stop regulating the industry to death.”

Indeed the increased regulatory burden, specifically via EPA, is a hot topic with this year’s aggregates producer survey group. That is no surprise given the ongoing media coverage of the Waters of the U.S. rule. One respondent described it as a combination of “Environmental extremism, governmental over-reach, and a lack of direction by federal, state and local DOT.”

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Another said, “I believe the greatest impact on the aggregates industry in the U.S. will be government regulations and the inability to start a new quarry. Political pressure should be focused on the agencies that are impacting the industry.”

Another issue cited by several producers was the drastic dip in oil prices. “The downturn of crude oil and natural gas pricing where aggregate producers have popped up in the Bakken, Permian, Eagle Ford and Utica shale play areas continues to be a concern,” one producer said.

Also, labor issues are hovering on the horizon. One respondent told us, “The labor force is aging and replacing workers and training the young employees who choose this career is critical to running a safe operation in this period of punitive government oversight. Our highways and bridges are crumbling faster than we can afford to repair/replace. The Fed and states will need to agree on a funding model going forward for a steady reliable source of money to address this vital concern. We should prepare to run efficiently and safely.”

Hovering over all of the issues noted by respondents is the national economy. Although improving, at least one person took a pessimistic view of things, noting, “The national economic condition, specifically the lack of jobs and economic growth limit consumer confidence, which is reflected in slow business development with poor performance across the construction industry. Two percent growth per year doesn’t instill confidence. Poor national political leadership is another drag on the economy. Until the nation feels secure, the growth we need to expand will not be achieved.”

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Here are the top 10 main concerns of aggregates producers who took our survey. A full chart with percentages appears elsewhere in this article.

  1.  Construction Economy.
  2. Transportation Funding. 
  3. National Economy; Environmental Regulations (tie).
  4. Permitting. 
  5. Safety Regulations (MSHA).
  6. Healthcare. 
  7. Transportation. 
  8. Energy Costs; Labor (tie).
  9. Credit.
  10. Liability Costs; Equipment Capitalization (tie).

This is very similar to last year’s list. It is interesting to compare these issues with the issues on the mind of producers more than a decade ago, when Rock Products and the National Stone, Sand and Gravel Association co-produced “Critical Trends in the U.S. Aggregates Industry,” a report on industry conditions at the time.

Putting it in context, the aggregates industry was flying high back then, and production was growing every year. So it is no surprise that economic issues didn’t rate a mention. The top five issues were:

  • Environmental/Safety Issues.
  • Permitting.
  • Regulatory Oversight. 
  • Transportation Lobbying.
  • Information distribution.
Equipment Capitalization

With an AGG1 buying opportunity this year, producers plan to spend some money. More than 40 percent plan to increase their capital expenditures in 2015. That is up from the approximately one-third who revealed that they planned to increase their budget for equipment acquisition in 2014.

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Approximately 30 percent of the survey group planned to spend $1-5 million. About 25 percent planned to spend less than $500,000. But a healthy 21.2 percent planned to spend between $5-10 million in 2015.

And what do they plan to buy?

The big winner is equipment upgrades, identified by 63.6 percent of respondents; while 57.9 percent are focused on new equipment. Producers are still looking for a good used option though: 28.4 percent said they planned to consider used equipment.

Other types of equipment on the “want” list are plant additions, technology upgrades, mine development and, of special interest: 17 percent of those surveyed plan to invest in new plants, up from 10 percent in 2014.

Over and above consumables, such as oil, tires and replacement parts, the top equipment areas being considered for 2014 material handling and conveying equipment (59.3 percent); screening and sizing equipment (55.8 percent); and pick-ups and utility vehicles (52.3 percent). Excavators, loaders and dredges are also high on the list (47.6 percent), while motors and automation equipment came right behind.

Looking Ahead

When asked to describe the attitude in the aggregate industry in 2015, the answer is clear. Producers are feeling good about their prospects going forward, with a strong 57.4 percent defining themselves as “more optimistic” than in years previous. That number is down slightly from last year, but the lack of action on a highway bill is likely the cause of that. s

Survey statistics based on information gathered by 193 digital solicitation links opened.